NY Fed’s Williams Sees Low R-Star Persisting

New York Federal Reserve President John Williams said long-standing demographic and productivity trends continue to hold down the neutral real interest rate, or R-star, and that “the era of low neutral rates seems far from over.” Speaking at an event in Mexico City on 25 August, Williams noted that growth-adjusted estimates of R-star for the United States, the euro area, the United Kingdom and Canada remain around 0.5%, roughly where they stood before the pandemic. Williams cautioned that R-star is difficult to pin down precisely and urged policymakers not to rely too heavily on any single estimate. He added that recent shocks—including the pandemic, a surge in inflation and subsequent aggressive rate increases—have complicated the calculations but have not altered the underlying forces keeping equilibrium rates low. The New York Fed chief did not offer guidance on the near-term outlook for U.S. monetary policy, limiting his remarks to the structural factors shaping long-run interest-rate dynamics.